The Abbott government’s debt levy has taken the top marginal tax rate to 49 per cent. It is one of the highest in the Organisation for Economic Co-operation and Development and ­entrepreneurs say that deters foreign investment and leads to talented Australians moving offshore. Instead of raising the top tax rate, the Abbott government should have eliminated tax breaks that benefit the rich, they said.

AFR
AFR

Mr Gove said more high earners would start to consider other job options overseas.

“There is less and less financial reason to base high-income roles in Australia," he said. “Many high-income roles, such a hedge fund trader, can be based anywhere in the world."

Mr Grove said he agreed with leading economists such as
Saul Eslake
that a better way to deal with inequality is to remove tax concessions from the rich, such as negative gearing and capital gains tax concessions, rather than raise the top marginal tax rate. Mr Eslake, chief economist at the Bank of America Merrill Lynch, said the analysis that showed the gap between the rich and poor was not as high in Australia as in countries such as the United States, was not surprising given the way Australia’s tax system was structured.

He said Australia’s top rate of income tax cut, at an income level of $180,000, is lower than most other comparable countries.

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“In the UK where the top rate is 45 per cent, it cuts in at 150,000 pounds ($271,165)," he said. “In the US, where top rate is 40 per cent, it doesn’t kick in until $US450,000 ($479,000)."

Mr Eslake said if the government was serious about addressing inequality, rather than impose a temporary debt levy, it should get rid of tax breaks that favour the rich.

“It would have been fairer . . . if they had gone after tax breaks such as negative gearing, non-compulsory contributions to superannuation, concessions on the rate of capital gains and the concessional rate of company cars," he said. “The US and UK don’t allow negative gearing. They don’t have generous discounts for capital gains. Our tax concessions for superannuation are also very generous by international standards."

KPMG’s corporate tax leader David Linke said the fact Australia did not have as wide a pay gap between the rich and poor showed its tax system was working as it should. “But policymakers should be wary of taking this at face value. In a globally competitive age, our tax system is unsustainable without reform as we are over-reliant on personal taxes and bracket creep, with relatively few taxpayers holding the expenditure side of the ledger up."